Company Report | Management Meet

LONG TERM INVESTMENT CALL

29 March 2010 BUY

Industry Waste Management Recycling waste into wealth

CMP (INR) 42
Target 64 We spoke to the CFO Mr Gopal Agarwal of Ganesh Polytex Ltd (GPL)
(Upside / Downside) 52%
for an outlook on the Business and Strategy of the company. Following
52 week High/Low (INR) 45 / 5
are the key takeaways from the meet.
Market Cap (INR MN) 421
3M Avg. Daily Volumes 103,834 Investment Highlights
Reuters Code GNSP.BO
Bloomberg Code GNPL IN Commissioning of new RPSF facility
GPL P/E (FY11E) 4.8x
GPL is set to become the largest player in RPSF in the country with the
Shareholding Pattern (%) commissioning of its 18,000 TPA plant by the end of this month at its
Rudrapur facility at an estimated cost of INR 250 mn. This will take the
total RPSF capacity of GPL to 57,600 TPA beyond the current market
leader Reliance Industries’ capacity of 42,000 TPA.

The commissioning of this facility is expected to improve the operating

margins by around 250 basis points making.

Expansion plan to drive growth

The company’s ambitious growth targets include enhancing the

recycling capacity to over 100,000 TPA in stages over the next 3-4
years, building up of yarn spinning capacity to integrate its operations
Stock Performance (Last one year) forward, foraying into manufacturing of downstream products and
50 entering into horizontal integration through producing more value added
45
40 products like Partially Oriented Yarn (POY), packaging sheets, etc. from
35
30 pet bottle waste.
25
20
15
These growth plans would help the topline and bottomline to grow at a
10
5
healthy CAGR of 35-40% over the next few years.
0
Mar May Jul Sep Nov Jan Valuation & Outlook
Ganesh Polytex Ltd Nifty

At the CMP of INR 42, the stock trades at 4.8x its FY11e EPS of INR 8.8

Performance (%) (on weighted average capital). The company’s FY10e sales are 5x the
1 Month 3 Months 1 Year current market capitalisation and the price to cash EPS is 3.1x. The
GPL 4.3 51.3 602.0
stock looks attractive considering the expansion in capacity and the
Sensex 7.3 2.0 77.4
* Source: Bloomberg, Unicon Research growth of the user industry. We applied a multiple of 4x on FY12e EPS
to arrive at our target price of INR 64. We feel investors can buy the
Analyst stock at current levels for a good upside within a year.
Rahul Dholam | rdholam@uniconindia.in

Wealth Research, Unicon Financial Intermediaries Pvt. Ltd.

Email: wealthresearch@uniconindia.in
 Company Description

Established in 1988, Ganesh Polytex Ltd is one of the leading

manufacturers of Recycled/Specialty polyester staple fibre (RPSF, also
known as Fiberfil) and polyester yarn (dyed texturised/twisted yarn, and
grey texturised/twisted yarn).

Recycled Polyester Staple Fibre Dyed Texturised / Twisted Filament Yarn

Current Installed 21600 TPA at Rudrapur 2400 TPA at Kanpur

Capacity 18000 TPA at Kanpur

Raw Material Post Consumer PET bottle waste (non- POY/FDY and Grey Texturised Yarn
biodegradable in nature) and other kinds of
industrial waste of polyester

End Use Textile Sector
Garments (Sarees, Dress Materials),

Spun Yarn
Upholstery and furnishing fabrics,

Hosiery Yarn
Sewing Threads,

Blended Woolen Yarn
Cords, etc
Industrial Sector

Stuffing in Toys, Furniture, Pillows,
Quilts, Mattresses, and other comfort
products

Nonwoven carpets and Fabrics

Filter Fabrics

Medical and packaging textile

Geo Textile

Paper & Construction Industry

Technical textiles

Products Range
Textile Grade Fibre (1.5-3 Denier)
Grey Texturized

Trilobal Fibre
Grey Twisted / Doubled

Coarse Denier (5-30 Dn)
Dyed Texturized

Silicon Fibre
Dyed Twisted

Hollow Fibre
Dyed Doubled / Multifold

Hollow Silicon Fibre
Dyed Flat Yarn

Conjugated Fibre
Dyed Fancy Yarn

Hollow Conjugated Fibre
Colours / Shades over 800

Fire Retardant Fibre

Anti-microbil Fibre

Dope Dyed Fibre

Short Cut Fibre (3-4 mm)

Wealth Research, Unicon Financial Intermediaries Pvt. Ltd.

Email: wealthresearch@uniconindia.in
 Industry Overview

Waste Recycling

As per the estimates, India produces 500,000 tons of pet waste every year and due to increasing use of pet bottles in daily
consumption, the amount of waste is going to grow by leap and bounds. The waste of pet bottle takes over 1,000 years to
decompose and is hazardous for the environment and affects the fertility of the soil. The piling waste of pet bottles is posing a
serious threat to soil, rivers, ecological balance and thus to human being and animals.

It is very difficult to limit the use of pet bottles and thus, safe recycling of these wastes is the only available solution. Recycling
not only reduces the quantum of waste but also saves the invaluable crude oil, sources of which are limited. At present, the
total recycling capacity in India is around 145,000 TPA, out of which Reliance Industries Ltd. has a capacity of 42,000 TPA,
GPL has a capacity of around 39,600 TPA and rest is with other small local players.

Recycling post consumer PET Bottles waste to Clean Flakes

The recycling process of PET waste starts with the collection of PET waste. To ensure the regular supply of post consumer
PET waste, the company has set up its own purchase depots in many urban and metro cities. Presently Company is recycling
about 1.4 bn pet bottles annually. After collection, the process of compressing the bottles and containers is performed to make
it suitable for transportation to the company works site.

At work site bottles are sorted as per quality and bottles which are not PET bottles are separated. Bottles are then separated
as per color and all foreign particles such as paper, label, metal and other plastics parts are removed. Bottles are then sent to
shredders and grinders to reduce them to flakes. The flakes are forwarded to the cleaning section for a series of sorting and
washing process of the flakes, performed with chemicals to remove the remains of foods and drinks. The flakes are then dried
up and pass through a process called electrostatic separator which produces magnetic field to separate PET flakes from metal,
different kind of plastic particles and other contaminations. The cleaned flakes of reclaimed PET are then forwarded to
production section for the final product to produce fibre.

Sorting and processing of raw material is a key factor for maintaining uniform quality of finished product on constant basis as
raw material is not having uniform characteristics and quality of finished goods may have significant degree of variations.

Wealth Research, Unicon Financial Intermediaries Pvt. Ltd.

Email: wealthresearch@uniconindia.in
User Industry
The major user industry of Recycled PSF is –

Non-woven/technical textile;

Yarn spinning; and

Stuffing / Fiberfill Applications

Non-woven/Technical Textile Industry

Non-woven textiles are flat structured fabrics, such as sheets or webs, not made by weaving but by bonding and entangling
fibers by means of mechanical, thermal or chemical processes, offering cost effective solutions for an increasing wide variety of
applications such as hygiene, medical, packaging, automotive, filtration, construction and geotextiles, furniture, components of
apparels, insulation and cleaning.

In India, there is significantly large market for feminine hygiene products, consumer wipes, infant diapers and other disposable
non-woven products. Although the present market penetration in these applications is very small, it is expected to grow at very
high rates with rising income levels and enhanced purchasing power.

Consumption of non-woven in geo-textiles is expected to have exponential growth as over the 11th Plan; the aggregate
spending on infrastructure is estimated at USD 500 bn and nearly 25% of this spending is planned in the road sector. This
market is expected to consume huge quantity of non-woven every year.

Other areas of non-woven applications like automotive textiles, carpets, interlinings and wading, furnishings and beddings,
agricultural textiles, medical textiles, sports textiles etc are already seeing a lot of activity and are bound to grow at rapid rate in
order to catch up with the developed world.

Yarn spinning

Recycled PSF is used in yarn spinning in replacement of virgin grade PSF, which is about 15% costlier that recycled PSF. Due
to cost & sale price equation as well as growing demand for non-apparels fabric, use of virgin grade PSF is being replaced by
Recycled PSF.

Stuffing/ Fiberfill Apllications

With improvement in life style and urbanization coupled with increasing disposable income, use of home furnishing products like
quilts, comforters, mattresses, pillows, furniture etc. is increasing and growth in their market size is in double digit. Traditionally
these products were stuffed with cotton, foam, coir etc. with increasing prices and decreasing availability, cotton is almost out for
such uses. Recycled PSF is now being preferred over other traditional products like foam and coir because of its inherent
qualities like hygiene, wash-ability, light-weight and user friendly characteristics.

Wealth Research, Unicon Financial Intermediaries Pvt. Ltd.

Email: wealthresearch@uniconindia.in
 Value chain of Regenerated PSF

Non-
woven/Technical
textiles

Yarn Spinning

Stuffing/ Fibrefill
Products

Investment Highlights

Commissioning of new RPSF facility

GPL is set to become the largest player in RPSF in the country with the
commissioning of its 18,000 TPA plant by the end of this month at its
Rudrapur facility at an estimated cost of INR 250 mn. This will take the
total RPSF capacity of GPL to 57,600 TPA beyond the current market
leader Reliance Industries’ capacity of 42,000 TPA. The commissioning
of this facility is expected to improve the operating margins by around
250 basis points.

Future Expansion to drive growth

GPL is planning to set up a recycled POY yarn manufacturing facility

with a capacity of 18000 TPA at an investment of INR 350 million. The
new unit would start manufacturing in FY12. It is further planning to
expand its RPSF Capacity by 14400 TPA with an estimated project cost
of INR 250 mn.

Wealth Research, Unicon Financial Intermediaries Pvt. Ltd.

Email: wealthresearch@uniconindia.in
 The company’s ambitious growth targets include enhancing the recycling capacity
to over 100,000 TPA in stages over the next 3-4 years, building up of yarn
spinning capacity to integrate its operations forward, foraying into manufacturing
of downstream products and entering into horizontal integration through
producing more value added products like Partially Oriented Yarn (POY),
packaging sheets, etc. from pet bottle waste. These growth plans would help the
topline and bottomline to grow at a healthy CAGR of 35-40% over the next few
years.

Capacity Expansion

Particulars FY08 FY09 FY10E FY11E FY12E

Installed Capacity (M.T.)

Dyed Yarn 2400 2400 2400 2400 2400
Regenerated PSF 18000 27600 39600 57600 72000
Regenerated POY 18000

Capacity Utilisation (%)

Dyed Yarn 85.00% 89.00% 90.00% 90.00% 90.00%
Regenerated PSF 94.00% 79.00% 80.00% 70.00% 80.00%
Regenerated POY 70.00%

Production (M.T.)
Dyed Yarn 2045 2125 2160 2160 2160
Regenerated PSF 17005 21741 31680 42480 56160
Regenerated POY 12600
Total 19050 23866 33840 44640 70920

Wealth Research, Unicon Financial Intermediaries Pvt. Ltd.

Email: wealthresearch@uniconindia.in
 Strong growth from Technical Textiles

The current market size of technical textile in India is estimated to be

~INR 400 bn. The overall technical textile industry in India is expected to
grow at the rate of 11% year on year and reach a market size of INR
665 bn by the year 2012-13.

The domestic consumption of technical textiles under Hometech is

expected to increase from ~INR 32 crore in 2007-08 to ~INR 53 bn by
2012-13, an annual growth rate of 11%. The stuffed toys segment is
expected to grow at ~20% y-o-y over the next 5 years. This will drive the
demand for fiberfil.

With the sustainable growth of user industry, there is huge market for
Recycled PSF, consumption of which is set to grow at double digit
growth due to lower prices and introduction of versatile products for
increasing number of applications.

Financial Analysis

GPL has been on an expansion mode since the last few years and its
capacity has increased from 10800 TPA to 39600 TPA over the last
three years, the entire expansion plan being funded through internal
accruals. The Company's sales and net profits have increased at a
compounded annual growth rate (CAGR) of 28% and 30% respectively
between 2006-09. EBIDTA increased at a CAGR of 32% during the
same period on the back of improved product mix. Company is
moderately leveraged with a debt equity ratio of 1.4:1.

The expansion plan would help the company to grow at a CAGR of 35-
40% over the next 4-5 years with improving margins due to economies
of scale and tax incentives at its Rudrapur Unit.

Wealth Research, Unicon Financial Intermediaries Pvt. Ltd.

Email: wealthresearch@uniconindia.in
 Peer Analysis

Major Players in the Sector Location Capacity Reliance Industries Limited is the largest competitor to GPL in the
domestic market. Some other major manufacturers engaged in
(Tonnes p.a.)
manufacture of virgin PSF and regenerated PSF are Shiva Tex (P)
Ltd, Arora Fibres limited, Alliance Fibres, Nirmal fibres Private
Reliance Industries Ltd Hazira 42,000 limited. However none of them are comparable to GPL. Reliance is
too big and diversified to be compared while Arora is too small with
Ganesh Polytex Ltd Kanpur 39,600
a capacity of 6000 TPA, the others being non listed entities.
Shiva Tex (P) Ltd Ludhiana 18,000
GPL’s strengths over its peers are
Arora Fibres Ltd Silvassa 6,000

Largest range of products to cater to both industrial and
Allianz Fibres Ltd Gujarat 6,000 textile sector.
Other Small Players 33600
Strong diversified network of agents, dealers and
Total Industry 145,200 customers both in domestic and overseas markets.

Strong network in place for procurement of raw material

Sizeable capacity for economies of scale

Tax incentives for its Rudrapur unit

We checked the valuations of peers in the global markets and

compared 85 companies involved in the business of waste
management and disposal services across the world. Global waste
management companies generally trade at ~21-22x trailing
earnings.

Valuation & Outlook

At the CMP of INR 42, the stock trades at 4.8x its FY11e EPS of
INR 8.8 (on weighted average capital). The company’s FY10e
sales are 5x the current market capitalisation and the price to cash
EPS is 3.1x. The stock looks attractive considering the expansion
in capacity and the growth of the user industry. We applied a
multiple of 4x on FY12e EPS to arrive at our target price of INR 64.
We feel investors can buy the stock at current levels for a good
upside within a year.

Wealth Research, Unicon Financial Intermediaries Pvt. Ltd.

Email: wealthresearch@uniconindia.in
 Income Statement (INR mn.) FY08 FY09 FY10E FY11E FY12E

Income
Gross Sales 1,054.3 1,353.7 1,929.6 2,430.5 4,012.7
Less: Excise Duty & Sales Tax 0.1 - - - 77.9
Net Sales 1,054.2 1,353.7 1,929.6 2,430.5 3,934.8

Expenditure
Raw Material Consumption 692.3 881.3 1,222.4 1,572.6 2,452.2
Stores/Consumables 28.6 36.7 54.2 71.0 112.2
Power & Fuel 71.9 120.0 149.4 183.5 281.0
Packing Cost 21.2 22.6 30.8 38.9 112.1
Wages & Salaries 45.4 57.8 62.1 80.3 113.3
Repairs/Maintenance 5.8 11.6 15.0 15.7 21.5
Administrative & Selling expenses 70.9 120.7 121.9 159.9 238.1
Increase / (Decrease) in Stocks (1.6) (67.1) 14.0 (46.6) (120.8)
Total Expenditure 934.5 1,183.6 1,669.8 2,075.3 3,209.6

EBIDTA 119.7 170.1 259.8 355.2 725.2

EBIDTA (%) 11.4% 12.6% 13.5% 14.6% 18.4%

Interest Expenses 37.9 64.0 84.2 91.5 133.6

Depreciation 36.0 56.6 67.8 101.4 169.9
Miscellaneous Income 3.8 0.9 - - -

PBT 49.6 50.4 107.8 162.3 421.7

Tax 12.1 7.0 18.3 27.6 113.9

PAT 37.5 43.4 89.5 134.7 307.8

PAT (%) 3.6% 3.2% 4.6% 5.5% 7.8%

Dividend - on Equity Share Capital - - 4.9 19.4 29.1

- on Preference Share Capital 2.4 4.5 4.5 4.5 4.5
Dividend Tax 0.4 0.8 1.3 3.3 4.7

Earnings per Share 3.8 4.4 8.4 8.8* 15.9

P/E Ratio 11.1 9.6 5.0 4.8 2.6
*calculated on weighted average capital

Wealth Research, Unicon Financial Intermediaries Pvt. Ltd.

Email: wealthresearch@uniconindia.in
 Mar 31, Mar 31, Mar 31, Mar 31, Mar31,
Balance Sheet
2008 2009 2010E 2011E 2012E

Assets

Fixed Assets
Gross Block 669.7 858.3 1,113.7 1,763.7 1,763.7
Less: Depreciation 185.6 238.6 306.4 407.8 577.6
Net Block 484.1 619.7 807.3 1,355.9 1,186.1

Current Assets
Inventories 230.6 297.9 299.0 384.7 602.8
Receivables 71.9 134.3 135.7 169.0 274.5
Cash & Bank Balance 17.6 11.0 22.5 31.3 72.5
Loans and Advances & Other Current Assets 27.5 39.0 40.0 45.0 50.0

Current Liabilities
Bank Finance 190.0 287.0 309.5 337.0 437.0
Trade Creditors 70.5 107.6 101.9 131.0 153.3
Other Current Liabilities and Provisions 12.7 12.5 12.5 15.0 20.0

Net Working Capital 74.4 75.1 73.3 147.0 389.5

Total Assets 558.5 694.8 880.6 1,502.9 1,575.6

Liabilities

Equity Capital
Paid up Equity Share Capital 98.6 98.6 123.7 193.7 193.7
Reserves and Surplus 28.7 28.7 49.2 299.2 299.2
Profit and Loss Account 74.8 112.6 191.3 298.8 568.4
Preference Share Capital 45.0 45.0 45.0 45.0 45.0
Net Worth 247.1 284.9 409.2 836.7 1106.3

Debt 276.0 368.5 430.0 624.8 427.9

Deferred Tax liability 35.4 41.4 41.4 41.4 41.4

Total Liabilities 558.5 694.8 880.6 1,502.9 1,575.6

Wealth Research, Unicon Financial Intermediaries Pvt. Ltd.

Email: wealthresearch@uniconindia.in
 Unicon Investment Ranking Methodology

Rating Buy Accumulate Hold Reduce Sell

Return Range >= 20% 10% to 20% -10% to 10% -10% to -20% <= -20%

Disclaimer
This document has been issued by Unicon Securities Private Limited (“UNICON”) for the information of its customers only. UNICON is
governed by the Securities and Exchange Board of India. This document is not for public distribution and has been furnished to you solely for
your information and must not be reproduced or redistributed to any other person. Persons into whose possession this document may come
are required to observe these restrictions. The information and opinions contained herein have been compiled or arrived at based upon
information obtained in good faith from public sources believed to be reliable. Such information has not been independently verified and no
guarantee, representation or warranty, express or implied is made as to its accuracy, completeness or correctness. All such information and
opinions are subject to change without notice. This document has been produced independently of any company or companies mentioned
herein, and forward looking statements; opinions and expectations contained herein are subject to change without notice. This document is
for information purposes only and is provided on an “as is” basis. Descriptions of any company or companies or their securities mentioned
herein are not intended to be complete and this document is not, and should not be construed as an offer, or solicitation of an offer, to buy or
sell or subscribe to any securities or other financial instruments. We are not soliciting any action based on this document. UNICON, its
associate and group companies its directors or employees do not take any responsibility, financial or otherwise, of the losses or the damages
sustained due to the investments made or any action taken on basis of this document, including but not restricted to, fluctuation in the prices
of the shares and bonds, reduction in the dividend or income, etc. This document is not directed to or intended for display, downloading,
printing, reproducing or for distribution to or use by any person or entity who is a citizen or resident or located in any locality, state, country or
other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or would subject
UNICON or its associates or group companies to any registration or licensing requirement within such jurisdiction. If this document is
inadvertently sent or has reached any individual in such country, the same may be ignored and brought to the attention of the sender. This
document may not be reproduced, distributed or published for any purpose without prior written approval of UNICON. This document is for
the general information and does not take into account the particular investment objectives, financial situation or needs of any individual
customer, and it does not constitute a personalised recommendation of any particular security or investment strategy. Before acting on any
advice or recommendation in this document, a customer should consider whether it is suitable given the customer’s particular circumstances
and, if necessary, seek professional advice. Certain transactions, including those involving futures, options, and high yield securities, give
rise to substantial risk and are not suitable for all investors. UNICON, its associates or group companies do not represent or endorse the
accuracy or reliability of any of the information or content of the document and reliance upon it is at your own risk.

UNICON, its associates or group companies, expressly disclaims any and all warranties, express or implied, including without limitation
warranties of merchantability and fitness for a particular purpose with respect to the document and any information in it. UNICON, its
associates or group companies, shall not be liable for any direct, indirect, incidental, punitive or consequential damages of any kind with
respect to the document. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of Unicon Securities Private
Limited.

Address:
Wealth Management
Unicon Financial Intermediaries. Pvt. Ltd.
Ground Floor, Jhawar House,
285, Princess Street, Mumbai-400002
Ph: 022-66181200 / 100
Email: wealthresearch@uniconindia.in

Visit us at www.uniconindia.in

Wealth Research, Unicon Financial Intermediaries Pvt. Ltd.

Email: wealthresearch@uniconindia.in